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US TSYS: /STIR: Dovish NFP Release Presents Greatest Risk To Market Positioning

US TSYS
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We believe that that a ‘dovish’ NFP release would present the greatest risk to existing market positioning.

  • The last couple of sessions have seen long cover dominating on the SOFR strip, while yesterday saw relatively notable long cover in Tsy futures.
  • Also note that the J.P.Morgan Tsy client survey continues to point to net short positioning amongst active participants, while all client positioning is effectively net neutral.
  • Fed rate cut premium has been trimmed in the past few sessions. ~34bp of cuts are now priced for the November FOMC, representing less than even odds of a follow up 50bp rate cut.
  • While Fed Chair Powell’s Monday address didn’t point to any real desire to deploy another 50bp cut, further deterioration in the labour market would likely prompt a relatively meaningful dovish repricing given the Fed’s heightened sensitivity to any such developments.
  • Furthermore, our macro team suggest that there is greater risk of an upside surprise in the unemployment rate reading than a downside surprise. Their full write up is available here.
  • The BBG whisper number sits a touch above wider consensus, at 152K vs. the 150K median provided by the BBG survey, moving higher after the recent run of data releases.
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We believe that that a ‘dovish’ NFP release would present the greatest risk to existing market positioning.

  • The last couple of sessions have seen long cover dominating on the SOFR strip, while yesterday saw relatively notable long cover in Tsy futures.
  • Also note that the J.P.Morgan Tsy client survey continues to point to net short positioning amongst active participants, while all client positioning is effectively net neutral.
  • Fed rate cut premium has been trimmed in the past few sessions. ~34bp of cuts are now priced for the November FOMC, representing less than even odds of a follow up 50bp rate cut.
  • While Fed Chair Powell’s Monday address didn’t point to any real desire to deploy another 50bp cut, further deterioration in the labour market would likely prompt a relatively meaningful dovish repricing given the Fed’s heightened sensitivity to any such developments.
  • Furthermore, our macro team suggest that there is greater risk of an upside surprise in the unemployment rate reading than a downside surprise. Their full write up is available here.
  • The BBG whisper number sits a touch above wider consensus, at 152K vs. the 150K median provided by the BBG survey, moving higher after the recent run of data releases.